Fin 4200 Test 2 PT 3

Which one of the following statements regarding a firm's short-run financial risk is accurate?

A financially sound firm can become financially distressed as the result of its short-run exposure to financial risk.

A(n) ________ provides a means of investing in a foreign stock that otherwise could not be traded in the United States?

American Depository Receipt

All of the following affect the value of a call option except the

standard deviation of the returns on a risk-free asset.

The value of an option is equal to the:

time premium plus the intrinsic value.

Siobhan tends to hold onto assets that have lost value in the hope that their values will increase in the future. This behavior illustrates which one of the following?

Break even effect

Phoebe owns a $1,000 par value bond that can be converted into 62.5 shares of Hwang Company stock. Which one of the following terms refers to these 62.5 shares?

Conversion ratio

Which one of the following refers to the fact that an individual may reply differently if a question is asked in an equivalent but different manner?

Frame dependence

Assume all stocks are non-dividend paying. Given this assumption, which one of these statements is correct regarding stock options?

It is never optimal to exercise an American call option early.

Assume you own a November $27.50 call on DaronCo stock. Today is August 15 and the call has zero intrinsic value. Which one of the following best describes this option?

Out of the money

Interest rate parity:

eliminates covered interest arbitrage opportunities.

If the standard deviation of the returns on a stock increases, the value of the call options on the stock will ________ and the value of the put options on the stock will ________.

increase; increase

Tope and several of his friends collectively borrowed enough money to acquire all of the outstanding shares of Coburn & Collins Corporation. This transaction is known as a(n):

leveraged buyout

Warrants are

often added as an incentive to a private debt issue.

If a firm is effective in managing its financial risks, it can:

reduce the price volatility the firm faces